Russ Oil-Gas

05-18-2006 International Herald Tribune – By Judy Dempsey - ESSEN, Germany In a standoff reflecting the economic clout but also the mutual dependence of the giant energy companies in Europe, E.ON Ruhrgas of Germany has become locked in intense negotiations with the Russian state- owned Gazprom over acquiring a stake in Russia's much-coveted Yuzhno-Russoye natural gas field. "We want to take a major step toward developing our own gas resources by acquiring a 25 percent stake in the Russian gas field Yuzhno-Russoye," Burckhard Bergmann, chairman of the E.ON Ruhrgas executive board, said Wednesday. "We are engaged in intensive negotiations with Gazprom." Gazprom, which holds the license to operate the Yuzhno-Russoye gas field through its subsidiary Sevmorneftegazprom, had proposed offering a stake to E.ON Ruhrgas. In return, it would obtain minority stakes in companies belonging to the E.ON Ruhrgas Group in Germany, strengthening Gazprom's trading and distribution network in Europe. E.ON Ruhrgas, which has more than 55 percent of the German natural gas market, also has extensive trading and distribution companies throughout Western and Eastern Europe. Exports make up a fifth of the company's gas sales by volume. But Bergmann made it clear he was not prepared to go down a path Gazprom has been trying to follow for more than 15 years. "Gazprom wants significant minority share holdings in companies of the E.ON Ruhrgas Group," Bergmann said. "We have made considerable progress, but we have not yet been able to reach a final settlement." When asked if Gazprom could instead gain a share of Mol, the Hungarian energy company that E.ON Ruhrgas bought last year, Bergmann hedged. "We are not leaving Hungary," he said. E.ON Ruhrgas holds a 6.8 percent stake in Gazprom and is the only foreign company with representation on the energy giant's board. It is also heavily dependent on Russia for its supplies. E.ON Ruhrgas buys the bulk of its supplies from Russia, Norway and the Netherlands. In announcing record sales, which last year reached €17.9 billion, a rise of 35 percent over 2004, and a 14 percent jump in net profit, to €1.54 billion, Bergmann said the company's long- term aim was to cover between 15 percent and 20 percent of its natural gas supplies from its own production. Bergmann said a 25 percent stake in the Yuzhno-Russoye field would give E.ON Ruhrgas an additional 6 billion cubic meters, or 210 billion cubic feet, of natural gas a year from its own production sites and possibly more in the longer term. The tough stance of both sides in the Yuzhno-Russoye matter prevented any accord from being reached in talks between Germany and Russia last month. Instead, Gazprom concluded a deal last month with Wintershall, the energy division of the German chemicals company BASF. Wintershall obtained 25 percent of the voting shares in Yuzhno- Russoye and 10 percent of shares without voting rights. In return, Gazprom got more access to the European natural gas market by raising its stake to 50 percent in Wingas, a Russian-German gas distribution company controlled by Wintershall.